PM E-Drive: A few hits, several misses, and a repeat of FAME-II errors

Early this week, the Centre launched the PM E-Drive scheme, an airbrushed version of the previous FAME-II policy. While the earlier version failed on many fronts, it also unwittingly drew attention to how the same players can rig a system designed to support them.

When viewed as the successor of the FAME-II initiative, the PM E-Drive policy appears promising at first sight. However, it has several significant drawbacks of its predecessor and introduces new problems that may challenge the policy's objectives.

Major drawbacks of new policy

One of the new policy's most significant drawbacks is the absence of subsidies for electric cars and hybrid vehicles. This narrow focus on electric two-wheelers (e-2Ws), three-wheelers (e-3Ws), buses, trucks and ambulances sidelines a critical part of India’s transportation sector: own transportation.

In a country with a fast-expanding middle class and a steadily increasing level of car ownership, a critical factor in urban transport emissions, excluding electric cars from government incentives is counterproductive.

Gains now reversed

The withdrawal of FAME-II and incentives from several state governments, including the Delhi government, has already led to a sharp decline in EV passenger car sales. There was a 10 per cent decline in August, the highest year-on-year following the withdrawal of the incentives.

This shows that consumers are turning away from electric passenger cars, especially in light of rising costs, thus reversing the gains realized in the preceding years. However, the government’s decision to target mass-market vehicles is unwise because electric cars can also significantly reduce emissions from personal transport.

Charging stations

One of the highlights of the new policy, which needs to be lauded, is the fund allocation of Rs 2,000 crore for the development of 88,500 new charging stations. While this infrastructure development may not be sufficient in view of the current and future requirements of India’s EV market, which is estimated to have over 1.3 million registered vehicles, it is a good beginning.

The currently available network of only 5,254 public charging stations has been a significant reason that has contributed to the range anxiety, a big concern to potential EV buyers. The government should have considered implementing home and workplace charging infrastructure, which might be a more useful solution for EV users.

Another aspect that most governments ignore is that in India, electric vehicle owners charge their vehicles using power sourced from thermal or hydroelectric power plants, which makes a mockery of electric vehicles' environmental benefits. Unfortunately, the environmental goals of the PM E-Drive scheme may not be well served by the lack of a more comprehensive approach to infrastructure, one that would also encompass renewable energy sources for charging at home and in the public sphere.

Repeating FAME-II’s mistakes

The PM E-Drive scheme risks replicating the pitfalls that doomed its predecessor, FAME-II. Under FAME-II, manufacturers failed to meet localisation norms, misrepresented imports as domestically sourced, and exploited loopholes to claim wrongful subsidies, leading to recovery notices for Rs 469 crore. While the new scheme introduces Aadhaar-linked e-vouchers to address some transparency issues, it does not effectively solve the core problem: weak enforcement mechanisms.

The lack of stringent penalties and detailed oversight for compliance with localisation norms creates a vacuum for continued malpractice. Moreover, the absence of clear localisation targets under the new scheme weakens the government’s push for a self-reliant EV manufacturing base. Without rigorous enforcement and monitoring, the intent to promote domestic manufacturing and reduce reliance on imports remains unfulfilled, risking the repeat of past failures.

Production costs must be cut

The heavy reliance on subsidies in the PM E-Drive scheme raises concerns about the sustainability of India’s EV market. With Rs 3,679 crore earmarked for demand incentives, the policy aims to reduce the upfront costs of EVs and stimulate market growth. However, this subsidy-centric approach mirrors FAME-II, where sales plunged once incentives were reduced. For instance, after reaching a peak of 212,502 units in March 2024, EV sales dropped to 114,910 in April, reflecting the market’s vulnerability to subsidy withdrawal.

To foster a truly self-sustaining EV sector, the government must focus on reducing production costs through manufacturing innovation, achieving economies of scale and promoting a competitive environment that isn’t reliant on temporary financial crutches. Without such efforts, the market is likely to experience stagnation once the subsidy well dries up, stifling the industry's growth.

The e-voucher pitfalls

The introduction of Aadhaar-linked e-vouchers in the PM E-Drive scheme aims to streamline the subsidy distribution process, but it comes with its own set of challenges. India’s digital divide remains a persistent issue, particularly in rural areas where Internet penetration and mobile phone access are limited. The requirement for consumers to have Aadhaar-linked accounts, Internet access and smartphones may alienate a large segment of potential EV buyers, further widening the gap between urban and rural adoption.

Additionally, the e-voucher process could introduce bureaucratic inefficiencies. Dealers, especially in smaller markets, may struggle to manage the added administrative burden of processing e-vouchers, leading to delays and potential frustrations for buyers. Rather than streamlining the system, this process might create new barriers to EV adoption, particularly for consumers in less-developed regions.

Don’t exclude hybrid vehicles

Another critical shortcoming of the PM E-Drive scheme is its narrow focus on certain vehicle categories. By excluding hybrid vehicles, which can serve as a bridge for consumers hesitant to adopt fully electric cars, the policy overlooks a significant opportunity for a more gradual transition to electric mobility. Hybrid vehicles offer a more flexible solution for regions with underdeveloped charging infrastructure but have been left out of the new subsidy framework.

Furthermore, while the scheme emphasizes public transport and heavy vehicles like buses and trucks, it neglects the role of personal and small commercial vehicles in contributing to pollution. By not incentivising cleaner alternatives across all vehicle categories, the government risks missing out on substantial reductions in transportation emissions, especially in densely populated urban areas.

Strategic overhaul needed

A key objective of both FAME-II and PM E-Drive is to promote domestic manufacturing and reduce dependence on imports. However, the PM E-Drive scheme does not explicitly outline penalties or enforcement measures for non-compliance with localization norms, which proved to be a significant issue under FAME-II. Without clear guidelines and rigorous enforcement, the new scheme could fail to build a robust local EV supply chain, undermining India’s ambition to become a global leader in EV manufacturing.

While the PM E-Drive scheme presents a step forward in promoting electric mobility in India, it lacks the comprehensive vision needed to address the country’s core EV challenges. Its exclusion of electric cars and hybrid vehicles, inadequate infrastructure development, reliance on subsidies and potential repetition of FAME-II’s compliance failures suggest that the policy is not equipped to deliver long-term, sustainable change.

For the scheme to succeed, it requires a strategic overhaul that includes robust infrastructure plans, better enforcement of localisation norms and a broader focus on vehicle categories. Without these adjustments, the PM E-Drive scheme risks being another missed opportunity in India’s quest for a sustainable and self-sufficient EV ecosystem.